The Government has secured an agreement to borrow up to $200 million to cover the costs of the Morgan’s Point guarantee, MPs were told yesterday.

Curtis Dickinson, the Minister of Finance, said that a one-year term loan facility deal with the Bank of Butterfield and HSBC Bank Bermuda was executed last Tuesday.

He told the House of Assembly: “This facility was competitively priced at 4.25 per cent and it is satisfying that local financial institutions were supportive in providing Government with its financing needs for this unfortunate matter.”

The move enabled the Government to pay $165 million to lenders over the Caroline Bay development, where construction ground to a halt last year due to financial problems.

Mr Dickinson said: “This facility offers the Government valuable flexibility with regard to its duty to exercise the full range of options provided under the project agreements, which includes, in the first instance, the purchase of the interests of the B and C lenders.

“The remaining proceeds will be used substantially to fund other costs associated with this matter.”

Mr Dickinson said the B loan was provided by an institutional investor, while the C loan was initially provided by local reinsurance companies Arch, Axis and Validus. The Validus portion was subsequently purchased by Arch and Axis.

The minister added that the Government had not borrowed the $200 million, but the agreement means that a facility is in place to borrow that amount.

Mr Dickinson said: “Funds will only be withdrawn when absolutely necessary and only funds that are drawn will be charged with interest.”

He added: “Neither the new borrowing nor the revised debt ceiling amounts have been determined for any purpose other than to fulfil the Government’s obligations and exercise of its rights under the respective guarantees for the Caroline Bay project.

“However, we will seek advice from professional advisers to determine the extent there are other potential liabilities the Government may need to address.

“Without advice, borrowing or establishing a debt ceiling without room for contingency would be irresponsible.”

Mr Dickinson, who was forced to raise the island’s debt ceiling by $250 million to cover the borrowing, previously condemned the former One Bermuda Alliance government for putting the island “on the hook” for the guarantee three years ago.

He has also warned that, in addition to the $165 million guarantee, the Government will have to pay several million dollars to construction firms left unpaid after the project dried up.